EIR for Downtown San Francisco Mixed-Use Project Upheld Under Supreme Court’s Newly Articulated Standard of Review

John PonderJennifer GunschBy John Ponder and Jennifer Gunsch on Posted in California Environmental Quality Act (CEQA), Recent Cases - Environmental, Recent Cases - Land Use and Entitlements

The belatedly published South of Market Community Action Network v. City and County of San Francisco (2019) ___ Cal.App.5th ___ (“South of Market”), is the first published decision in which the court applies the principles articulated by the California Supreme Court in the recent Sierra Club v. County of Fresno decision (commonly referred to as “Friant Ranch”) regarding the standard of review for the adequacy of an EIR (discussed in detail here).

The challenged EIR in South of Market set forth two proposed schemes for a mixed‑use development (the “5M Project”) on a 4-acre site in downtown San Francisco: an “Office Scheme” and a “Residential Scheme.” Under both schemes, the overall gross square footage was substantially the same, with varying mixes of office and residential uses. Additionally, each scheme would result in new active ground floor space, office use, residential dwellings, and open space. Both schemes would also preserve and rehabilitate the Chronicle and Dempster Printing Buildings, demolish other buildings on site and construct new buildings ranging from 195 to 470 feet in height.

Petitioners alleged a litany of CEQA violations in their petition, including claims regarding traffic and circulation, open space, inconsistencies with area plans and policies, and the adequacy of the statement of overriding considerations. Applying existing law and specifically relying on Friant Ranch, the South of Market court looked to whether the EIR at issue contained the details necessary for informed decision-making and public participation. The court emphasized that when assessing the legal sufficiency of an EIR, perfection is not required as long as a good faith effort at full disclosure has been made. Contrary to the petitioners’ allegations, the court held this standard was met here, demonstrating that, in this case at least, Friant Ranch does not appear to have led to a significantly different approach to resolving the various CEQA challenges alleged in the petition for writ of mandate.

To avoid redundancy and for the sake of brevity, the remainder of this post will address in detail only the more novel and/or nuanced holdings of the court. Continue Reading

FERC Holds the Line on One-Year Limit for State Review of Clean Water Act Certifications for Interstate Natural Gas Pipelines

Olivier TheardAndrew MinaBy Olivier Theard and Andrew Mina on Posted in Energy, Environmental

On April 2, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) determined that the one-year statutory limit on state review of interstate natural gas pipeline company applications for water quality certification was a bright-line deadline that could not be extended by private agreement.[1] FERC found that the New York State Department of Environmental Conservation’s (“NYDEC”) failure to act within one year of receipt of a water quality certification application submitted by National Fuel Gas Supply Corporation and Empire Pipeline, Inc. (together, “National Fuel”) constituted waiver of the State’s authority under Section 401 of the Clean Water Act[2] to make a final determination on the application. Section 401 limits such review to one year or less from the date of receipt of the application. The Commission rejected contentions by the NYDEC and Sierra Club that the NYDEC could extend the date by which it could act on a water quality certification application. The Commission’s Order will arguably restrict states’ ability to review water quality certification applications associated with interstate natural gas pipeline projects, may actually lead to uncertainty for entities proposing to construct such pipeline facilities, and will test the Commission’s interpretations of Section 401 and related case law. Continue Reading

Opportunity Zones Update: NEW PROPOSED TREASURY REGULATIONS (PART I)

Amy TranckinoJudith FioriniJohn CrispBy Amy Tranckino, Judith Fiorini and John Crisp on Posted in New Rules and Legislation

Background

In December 2017, as part of the Tax Cuts and Jobs Act (“TCJA”), Congress established a new tax incentive program to promote investment in certain low-income communities designated by the IRS as qualified opportunity zones. Section 1400Z-2 of the Internal Revenue Code provides three compelling tax incentives to encourage investment in qualified opportunity funds (“QOFs”).

Taxpayers can defer paying taxes on capital gain from the sale or exchange of appreciated assets by investing such gain in a QOF within 180 days following such sale or exchange. Such gain may be deferred until the earlier of (i) when the investment is sold or exchanged or (ii) December 31, 2026.

Investors receive a step-up in the basis equal to 10% of the original deferred gain if the investment in the QOF is held for at least five years, with an additional 5% basis step-up if the investment is held for seven years. These basis step-ups can result in permanent exclusion from taxation of up to 15% of the originally deferred gain.

If the investor holds the investment in the QOF for at least 10 years, an elective basis adjustment made upon sale of the interest in the QOF provides a permanent exclusion from taxation for any appreciation in excess of the deferred gain.

On April 17, 2019, the Treasury Department released its second round of guidance on opportunity zone investment in the form of proposed regulations (the “New Proposed Regulations”). These newly proposed regulations supplement and in some cases revise the proposed regulations issued in October 2018 (The “October Proposed Regulations”). Continue Reading

FERC Rejects MISO’s Proposed Restrictions on Joining the Development Queue

Benjamin HuffmanPercival C. OlsenBy Benjamin Huffman and Percival C. Olsen on Posted in Energy, New Rules and Legislation

Securing interconnection and transmission rights and completing related upgrades is often the longest lead-time item in an electric generator’s development timeline. At the same time, many potential new power plants are being developed and vying for access to the electric transmission grid. The policy of most grid operators is to address interconnection requests on a “first come first served” basis. As a result, developers/interconnection customers are incentivized to submit their interconnection requests as early in the development process as possible in order to save their projects’ place in line. Over the last two years, Midcontinent Independent System Operator, Inc. (“MISO”) experienced record-high interconnection requests, and yet nearly 80% of these submissions ultimately were withdrawn prior to commercial operation of the project. MISO attributed this trend to developers submitting multiple requests for the same proposed project to test (and quickly withdraw) multiple interconnection concepts, many of which the developers knew they were not going to support through the entire queue process.

In an effort to reduce the number of requests in its interconnection queue that will ultimately be withdrawn, MISO requested that the Federal Energy Regulatory Commission (“FERC”) approve revisions to MISO’s interconnection request procedures related to milestone payments and site control requirements, which revisions would place substantially higher hurdles to a potential new power plant joining MISO’s generator interconnection queue. In Midcontinent Independent System Operator, Inc., 166 F.E.R.C. ¶ 61,187 (2019), FERC rejected MISO’s request, but FERC’s ruling leaves open the possibility that it might approve a similar set of heightened requirements, so long as MISO makes modifications to its proposal to account for interconnection customers that might be disproportionately disadvantaged. Continue Reading

District Court Provides Guidance On Climate Change Analysis Under NEPA

Keith GarnerAlex MerrittBy Keith Garner and Alex Merritt on Posted in Environmental, Global Climate Change, Recent Cases - Environmental

A federal district court has ruled that the Bureau of Land Management (“BLM”) failed to adequately consider climate change when approving a set of oil and gas leases on public lands in Wyoming. The ruling should be of broader interest to developers and energy companies because it offers guidance on how to properly analyze a project’s effects on climate change under the National Environmental Policy Act (“NEPA”). The law in this area remains unsettled –especially since President Trump rescinded the Obama Administration’s formal guidance on NEPA and climate change in 2017. Future developments are likely, and project sponsors should monitor them closely.

At issue in the case are oil and gas leases covering 300,000 acres of public lands in Wyoming. For each lease sale, BLM prepared an environmental assessment to comply with NEPA. The environmental assessments discussed climate change on a “conceptual level,” without quantifying and analyzing the greenhouse gas emissions that would result from the lease sales. The court found the analysis inadequate under NEPA, and it halted drilling under the leases and sent the matter back to BLM for additional environmental review. In its lengthy ruling, the court offered concrete guidance to BLM on how to fix its analysis of greenhouse gas (“GHG”) emissions and climate change on remand, including that:

  • BLM should quantify GHG emissions that would result from drilling oil and gas wells on the leased parcels.
  • BLM should provide more detail about “downstream” GHG emissions that would result from the consumption of oil and gas produced under the leases.
  • BLM should better evaluate the “cumulative” effect of the leases together with other projects, including by comparing GHG emissions from the leases against available emissions forecasts and other BLM programs.

This guidance may also serve as a useful roadmap to NEPA compliance for other projects, particularly other energy projects. And development opponents are likely to use the court’s reasoning to challenge future NEPA documents. Below we break down the court’s direction on three categories of GHG emissions, each requiring a different level of detail. Continue Reading

CDP Applicant May Not Challenge Local Agency’s CEQA Decision on Coastal Development Permit While CDP Appeal to Coastal Commission Is Pending

Whitney HodgesShadi FarzanBy Whitney Hodges and Shadi Farzan on Posted in California Environmental Quality Act (CEQA), Land Use and Entitlements, Recent Cases - Land Use and Entitlements

In Fudge v. City of Laguna (G055711), published on February 13, 2019, the Fourth District Court of Appeal joined the First and Sixth Districts by reaffirming the need for a litigant to wait for the California Coastal Commission’s (“Commission”) determination on the appeal of a coastal development permit (“CDP”) prior to initiating litigation.

The key takeaway here is that a local agency’s California Environmental Quality Act (“CEQA”) determination in cases where a CDP has been appealed is not final for purposes of adjudication if the Commission has not ruled on the appeal. While the exhaustion of administrative remedies doctrine is well established, this decision is unique in that it applies the doctrine even where a judicial challenge alleges only CEQA violations, providing insight into the relationship between CEQA and the Coastal Act. Moreover, this decision also addresses the extent to which the Commission’s standard of review is de novo. Continue Reading

California Supreme Court Clarifies Scope of De Novo and Substantial Evidence Standards Of Review In CEQA Cases

Jack RubensLauren ChangBy Jack Rubens and Lauren Chang on Posted in California Environmental Quality Act (CEQA), Recent Cases - Land Use and Entitlements

In Sierra Club v. County of Fresno (S219783), the California Supreme Court unanimously reaffirmed that the substantial evidence standard of review does not always apply when a lead agency prepares an environmental impact report (“EIR”) for a development project. Rather, the court determined that the less deferential de novo standard applies if the EIR’s discussion of a potentially significant impact has been omitted or is factually insufficient. In other words, while a lead agency has considerable discretion as to the methodology and analysis it employs to analyze a potentially significant impact, an EIR must reasonably describe the nature and magnitude of the impact (i.e., include a meaningful explanation of why an impact is significant or not) if it is to survive judicial scrutiny. In County of Fresno, the court employed the de novo standard and held that the EIR’s air quality analysis was inadequate because it did not explain the connection between the project pollutants and negative health effects or explain why it could not make such a connection. Continue Reading

On Repeat: Courts Again Uphold Low Carbon Fuel Standard Programs

Nicholas van AelstynDaniel MaroonBy Nicholas van Aelstyn and Daniel Maroon on Posted in Environmental, Global Climate Change, Recent Cases - Environmental

The Ninth Circuit Court of Appeals recently upheld – for the second time – California’s Low Carbon Fuel Standard (“LCFS”) against constitutional challenges brought by industry groups. The case, Rocky Mountain Farmers Union v. Corey (9th Cir. 2019) (No. 17-16881) (“Rocky Mountain II”), considered the groups’ claims that all 3 historical versions of the LCFS violate the Commerce Clause and the “federal structure of the Constitution” by regulating extraterritorially. The court held that while the plaintiff’s claims had changed form since the first time the court upheld the LCFS, “both the regulations and the claims have the same core structure now as they did then.” The court used this similarity to guide its analysis and uphold the district court’s dismissal. Continue Reading

Cannabis Regulation is the New Frontier in Real Estate and Land Use Control

Whitney HodgesRachel KeeneyBy Whitney Hodges and Rachel Keeney on Posted in commercial lease, Land Use and Entitlements

California has positioned itself as a leader on emerging cannabis policy. While federal law still prohibits cannabis-related activities within the State’s borders, several largely progressive laws in California permit the possession, cultivation, transportation, and distribution of cannabis. The effects of the burgeoning cannabis industry are far-reaching, and have already proven to significantly impact the real estate industry. This Article addresses the history of cannabis regulation within California, the legality of various land use approaches employed by jurisdictions throughout the state and some of the nuances a property owner should consider when negotiating a commercial lease with a tenant who intends to use the premises for a cannabis-related use. Continue Reading

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